Australia GDP Q2 2016

Australia: GDP growth slows in Q2

September 7, 2016

In the second quarter, GDP grew a seasonally-adjusted 0.5% over the previous quarter, which was below the 1.1% expansion in Q1 and the 0.6% expansion analysts had expected. The result marked the lowest growth rate since Q2 2015. On an annual basis, GDP growth improved from 3.0% in Q1 to 3.3% in Q2, its fastest pace in four years.

Domestic demand was the primary driver of growth, retaking its place as the traditional engine of growth following the external sector’s surprisingly strong contribution in the first quarter. Domestic demand increased from 0.4% growth in Q1 to 0.6% in Q2 over the previous quarter. The acceleration was mainly due to the rate of growth in government consumption nearly doubling from 1.0% in Q1 to 1.9% in Q2, the highest reading since Q3 2008. Private consumption, on the other hand, slowed from a 0.8% increase in Q1 to a 0.4% increase in Q2. Fixed investment growth was flat following a 0.8% expansion in Q1.

On the external front, export growth slowed down dramatically, easing from 3.1% in Q1 to 1.3% in Q2. In contrast, imports grew 2.7% in Q2, after a 1.9% contraction in Q1. The resulting contribution of the external sector was minus 0.2 percentage points, the lowest contribution in a year (Q1: +1.1 percentage points).

The Reserve Bank of Australia (RBA) sees the economy growing between 2.50% and 3.50% both this year and in 2017. FocusEconomics Consensus Forecast panelists see the economy expanding 2.8% in 2016, which is unchanged from last month’s forecast. For 2017, the panel also expects economic growth of 2.8%.

Author:Christopher Mc Innes, Economist

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